Correlation Between Zimplats Holdings and Merafe Resources

Can any of the company-specific risk be diversified away by investing in both Zimplats Holdings and Merafe Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Zimplats Holdings and Merafe Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zimplats Holdings Limited and Merafe Resources Limited, you can compare the effects of market volatilities on Zimplats Holdings and Merafe Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Zimplats Holdings with a short position of Merafe Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zimplats Holdings and Merafe Resources.

Diversification Opportunities for Zimplats Holdings and Merafe Resources

0.15

Correlation Coefficient

Zimplats Holdings  Merafe Resources

Average diversification

The 3 months correlation between Zimplats and Merafe is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Zimplats Holdings Limited and Merafe Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merafe Resources and Zimplats Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Zimplats Holdings Limited are associated (or correlated) with Merafe Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merafe Resources has no effect on the direction of Zimplats Holdings i.e., Zimplats Holdings and Merafe Resources go up and down completely randomly.

Pair Corralation between Zimplats Holdings and Merafe Resources

Assuming the 90 days horizon Zimplats Holdings Limited is expected to under-perform the Merafe Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Zimplats Holdings Limited is 1.49 times less risky than Merafe Resources. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Merafe Resources Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7.70  in Merafe Resources Limited on September 15, 2024 and sell it today you would lose (0.20) from holding Merafe Resources Limited or give up 2.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.97%
Values	Daily Returns

Zimplats Holdings Limited  vs.  Merafe Resources Limited

Zimplats Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zimplats Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Zimplats Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Merafe Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merafe Resources Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Merafe Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Zimplats Holdings and Merafe Resources

The main advantage of trading using opposite Zimplats Holdings and Merafe Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zimplats Holdings position performs unexpectedly, Merafe Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Merafe Resources will offset losses from the drop in Merafe Resources' long position.

The idea behind Zimplats Holdings Limited and Merafe Resources Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.